Temporary loan limits may in-fact be just that, temporary. Much like signs that read "grand opening" or "under new management" or "new" at many retail establishments, the word temporary, as a relative term to infinite, is at times not so temporary.
Over three years ago, as reported in the Wall Street Journal on July 7, 2011, congress increased the mortgage loan limits Fannie and Freddie guarantees to as high as $729,750.00 in many high-cost areas. The $729,000.00 loan limit is an increase of $312,000.00 from $417,000.00 in those high-cost areas. However, many additional counties benefited from loan-limit increases, just not to the maximum limit.
Who cares? The housing market and anyone in that market, possibly you.
Although Fannie/Freddie backed higher loan amounts similar to lower loan amounts, lenders were able to capitalize, in my opinion, on the "temporary" range by publishing higher rates as an industry standard. Three plus years of "temporary" separate rate sheets with separate higher rates bundled and sold at built-in higher profit margins.
Removing Fannie and Freddie as major investors (guarantors) in that high-balance mortgage range may lead to real interest rates increases. Without the backing of quasi-governmental agencies, investors may require premiums as a compensating factor. Additionally, less liquid markets remove potential driving down competition while leading to higher costs. Before the temporary limits were increased, Jumbo loans were typically more expensive than Fannie/Freddie backed loans.
Higher costs are caused by building in the risk. Consumers will pay in either discount points or more typically higher interest rates. Higher interest rates lead to higher payments. If homeowners cannot afford or qualify for a mortgage at the higher payments, the compensating factor would have to be lower Home Values.
The loan limit changes are scheduled to take effect October 1, 2011 unless last-minute legislation is passed to extend temporary. In the mortgage world that means loans would have to be delivered by October 1, which means many lenders will stop accepting applications at those rates prior to that date based on their work flow. If you have been on the fence waiting for lower rates, time may be running out.
A weak economy, continued unemployment, unclear foreclosure forecasts, global pressure to increase interest rates, and possibly a decrease by Moody's on the US credit rating sure don't lead to higher home values.
Sorry, no good news today.
No comments:
Post a Comment